Articles Tagged with securities and exchange commission

A significant way that the Securities and Exchange Commission enforces federal securities laws is through levying fines on wrongdoers in the financial services industry.  Within the past few years, the SEC has issued billions of dollars in civil penalties and disgorgements in civil enforcement proceedings against defendants. The SEC allocates received fines, amongst other things, to compensate victims of securities violations. The unfortunate reality, however, is that the SEC only collects a little over half of the fines imposed through settlements and judgments according to agency statistics reported by Wall Street Journal.

In a five-year fiscal period ending in September 2018, the SEC reportedly collected 55% of the 20 billion dollars in fines imposed upon wrongdoers in the industry. Between 2009 and 2013, the SEC issued $14.6 billion in fines but collected 60% from the defendants. In the fiscal year 2018 alone, the SEC only received about 28% of their 4 billion dollars in fines levied through 821 enforcement actions. Out of the total owed fines, $1.7 billion comes from a settlement with an international oil company, Petrobras and the SEC is permitting this owed money to go to Brazilian authorities instead. Therefore, it is not unlikely that the SEC will never collect this significant fine that could have gone to funds meant for harmed investors.

The SEC has struggled with collecting civil penalties and disgorgement ordered in enforcement proceedings for quite some time. Based on the kinds of people and entities fined, the SEC often holds a low chance of actually getting the money. Fined defendants often do not have the money to pay, on top of dealing with the other consequences of their actions such as serving prison time and owing civil suits. After all, several fraud perpetrators, such as Ponzi Schemers get charged for their actions only after losing money needed to maintain their scheme. Even if the defendants can afford to pay the fine, the SEC does not have the right to force payment by seizing a debtor’s property or assets. Instead, the SEC must go through the long, tedious process of collecting money through liens and other court remedies to collect on the judgments.

Getting called by the SEC can be a frightening experience for anyone. Such a call is especially serious for financial professionals including those that trade in stock or work for public companies or companies which had stock that sold in private offerings. The SEC can oblige any American citizen to comply with any demands for information that could assist in their enforcement of federal securities laws. One of the more frequently asked questions that our securities regulatory law team answers in our free consultations is: “Should I respond to the SEC’s phone call?”  The answer is yes, but only after retaining an experienced securities regulatory attorney to represent you in the process and be your intermediary. The contacted party should take down the SEC caller’s name and information to call back later.

Our securities regulatory attorneys advise individuals not to respond immediately and without a lawyer to mitigate risks. Through this course of action, contacted parties are more protected from unwarranted charges and other risks that arise when speaking with the SEC unprepared.  The SEC may tell you that you are not a target, but they will not make any enforceable promises in that regard. It is up to you to make sure that you do not become a target.  Remember, the English language can be tricky, and lawyers’ use of it is different from that of the average layperson. A point to keep in mind is that when the SEC calls, it has an agenda that prioritizes their mission and not your specific interests.

The SEC reaches out to people to gather facts to determine whether any provisions of federal securities laws or rules have been violated. Thus, financial professionals contacted by the SEC are either the target of an investigation or believed to have related knowledge. The SEC may use the information you provide in the testimony to pursue civil charges through administrative or court proceedings. Additionally, the SEC may provide information to other agencies for their own separate federal, state, local or foreign administrative, civil or criminal proceedings. Individuals contacted by the SEC must respond fully, truthfully, and honestly or risk receiving fines and even possibly terms of imprisonment. In certain cases, it may be in your best interest to asset your fifth amendment rights and not testify at all.

The current ongoing federal government shutdown adversely affects the Securities and Exchange Commission with a “very limited number of staff members available” to carry out the agency’s tasks. The SEC handles the enforcement of federal securities laws through overseeing approximately $90 trillion in annual securities trading as well as the activities of over 27,0000 registered entities and self-regulatory organizations. The SEC’s Division of Enforcement investigates into potential securities laws or regulatory violations and recommends any required action against perpetrators. Now, the SEC is reportedly operating at 5.8% and the enforcement division at 8% of capacity. In fact, the Division will take months after the shutdown ends to recover, according to the SEC’s Office of Internet Enforcement’s chief, John Stark. The constraints posed by the government shutdown come after the SEC’s outstanding enforcement and accomplishments in 2018, posted in their second annual report.

Starting with the first 2017 report, the Division assesses the performance of their fiscal year with five core principles in mind. These Division of Enforcement’s five principles are a focus on the Main Street Investor; individual accountability; keep pace with technological change; impose remedies that most effectively further enforcement goals; and continuously assess the allocation of resources. Based on their assessment, SEC’s codirectors Stephanie Avakin and Steven Peikin described the Division of Enforcement’s efforts this year as a “great success”. In evaluating their effectiveness, the Division’s assessment focuses more on the “nature, quality, and effects” of their enforcement actions, rather than just the quantitative metrics.

Nonetheless, the Division did accomplish impressive numeric feats as well despite the constraints of a hiring freeze and the Supreme Court’s 2017 decision in Kovesh v. SEC. The Division has investigated and recommended hundreds of cases alleging misconduct, leading to $794 million returned to harmed investors. Compared to the prior year, the SEC filed more enforcement actions (821) with higher numbers for stand alones (490), follow-on admin proceedings (210) and delinquent filings (121) in 2018.  The most common stand-alone enforcement actions involved securities offerings, investment advisors, and issuer reporting as well as disclosure. Despite Kovesh v. SEC limiting the window of time for collecting, the SEC ordered around $2.5 million in disgorgement and another $1.5 million in penalties.

A former Wells Fargo registered representative in Daytona, Ohio is facing charges by the Securities and Exchange Commission for defrauding investors out of over a million dollars in a fraudulent scheme that targeted seniors. The SEC filed a complaint against John Gregory Schmidt with the United States District Court for the Southern District of Ohio on Tuesday. Allegedly, Mr. Schmidt made unauthorized sales and withdrawals from variable annuities to use the proceeds for covering shortfalls in other customer accounts. While Mr. Schmidt allegedly received over $230,000 in commissions, his customers were unaware of the transactions. When the scheme unraveled, it is reported that involved investors discovered that the account balances provided by their trusted financial adviser were false. Our investor fraud attorneys are currently investigating into customer claims against Mr. Schmidt.

The SEC complaint alleges that John Gregory Schmidt sold securities from seven of his investors and transferred proceeds to other customer accounts. Most of the securities were variable annuities that required letters of authorization, which Mr. Schmidt is alleged to have forged without client consent. Instead of notifying certain clients of their dwindling account balances, Mr. Schmidt allegedly sent false account statements and permitted excessive withdrawals. Unbeknownst to the client with account shortfalls, it is charged that the received money was illegally retrieved from other customer accounts. The SEC claims that Mr. Schmidt’s misrepresentations violate federal securities laws, including Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.

It is important to note that John Gregory Schmidt’s alleged fraudulent actions appear to have targeted some of the most vulnerable people in society. Mr. Schmidt, who is 65 years old, ran a fraudulent scheme that targeted elderly victims not too far off from his age, according to the complaint. Several of his reported victims were suffering from medical conditions such as Alzheimer’s and other forms of dementia. Tragically, at least five of the defrauded investors have passed away and will never be able to see justice served.

Barred FINRA-registered broker Steve Pagartanis, of Suffolk County, N.Y, is facing charges by the SEC and the Suffolk County District Attorney’s Office for allegedly running a multi-million-dollar Ponzi Scheme that bilked long-term investors, many of them seniors, for 18 years. In May 2018, the SEC filed a civil complaint against Steven Pagartanis alleging that he solicited and sold securities using falsified statements; defrauding at minimum nine investors out of $8 million. Mr. Pagartanis allegedly told investors that he would invest their funds in a publicly-traded or private land development company. Steven Pagartanis was arrested on July 25, 2018, with charges related to securities fraud as well as mail and wire conspiracies in connection with this alleged Ponzi scheme. Before being barred from acting as a broker by FINRA, Steve Pagartanis (CRD#1958879) was most recently a registered broker with Lombard Securities Incorporated. Our securities fraud attorneys are currently investigating into Steve Pagartanis’s alleged Ponzi Scheme on behalf of investors who lost their irreplaceable life savings.

Victims claimed to have trusted Mr. Pagartanis after having done business with him for years and entrusted hundreds of thousands of dollars, including retirement and elder care earmarked money.  Mr. Pagartanis reportedly claimed that the money would purchase investments in Genesis Land Development. His victims claim that Mr. Pagartanis promised that their investments in the real estate development company would produce 4.5% in guaranteed interest with annual dividends. On the contrary, Mr. Pagartanis allegedly never invested the money and deposited it into his personal bank accounts, as also alleged in the SEC complaint. Now, victims of Mr. Pagartanis’s alleged Ponzi Scheme are left distraught, with no other choice but to hold the appropriate parties responsible – in particularly his brokerage firm Cadaret Grant & Co.

Our investor fraud attorneys see many parallels between Steve Pagartanis’s alleged fraudulent actions and typical Ponzi Scheme activity. A Ponzi Scheme is a kind of investment fraud in which a perpetrator pays “false returns” to existing investors using new deposits. Ponzi Scheme perpetrators will use some of the money to fund their lavish lifestyles. As is often the case in Ponzi Schemes, Steve Pagartanis relied on built up trust gained over the years from his mostly elderly clients. Eventually, Steve Pagartanis allegedly failed to make an expected payment to a client, which most probably unveiled the fraud. Ponzi schemes are almost always finally revealed when the fraudulent perpetrator could no longer make a payment, according to securities fraud attorneys.

You just received a Subpoena from the Securities and Exchange Commission (SEC).  What will you have to produce?  We regularly represent securities industry professionals and investors who have gotten these Subpoenas, and the reaction is usually the same: people are nervous and concerned.  How will this affect your business, and how what will it take the comply?

Getting an SEC Subpoena is a serious matter, and it is imperative that you carefully comply in a timely manner.  Subpoenas will typically require you to produce documents or testify, or both.  Your goal should always to limit your involvement with the federal authorities, and this begins with your production of documents in response to the Subpoena.

The first step is to remember that just because you received a Subpoena does not mean you automatically did something wrong.  You may not be the SEC’s target, but may be someone the Commission believes has information related to another person or business.  The SEC is not obligated to tell you whether they view you as a target or a witness, and you should not assume you are a target.

The Securities and Exchange Commission (SEC) announced on February 16, 2016 a settlement with Massachusetts-based PTC, Inc. involving alleged violations of the Foreign Corrupt Practices Act (FCPA).  In total, PTC was reported to agree to pay approximately $28 million, including nearly $12 million in disgorgement and more than $14 million in a non-prosecution agreement with the United States Department of Justice in a parallel action.

According to the SEC Order, PTC’s China-based subsidiaries made payments to China officials in an effort to win business, including:

  • Provided improper travel, gifts, and entertainment totaling nearly $1.5 million to Chinese government officials who were employed by state-owned entities that were PTC customers.